Answer:
Mary's income:
- salary = $117,000
- dividend income = $13,500
- interest on bonds = $5,700
- long term capital gains = $21,000 - $6,000 = $15,000
- short term capital gains = $11,000 - $7,400 = $3,600
Mary's adjusted gross income:
- taxable income = $117,000 + $13,500 + $5,700 + $3,600 = $139,800
- capital gains = $15,000
Mary's exemption + itemized deduction = $4,000 + $7,500 = $11,500
- since the exemption plus the itemized deductions are lower than the standard deduction, Mary should use the standard deduction ($12,200 > $11,500).
*since we are not given the table containing the tax bracket, I will use the current 2019 tax brackets:
A) taxable income = $139,800 - $12,200 = $127,600 + $15,000 (capital gains 15%)
federal tax liability = [$14,382.50 + 24% x ($127,600 - $84,200)] + ($15,000 x 15%) = ($14,382.50 + $10,416) + $2,250 = $24,798.50 + $2,250 = $27,048.50
B) Mary's marginal tax rate is 24%
C) Mary's average tax rate = $24,798.50 / $127,600 = 19.43%
